FX.co ★ Ten-Year Yield Reaches Nearly Six-Month Closing High

On Thursday, a significant downward shift was observed in the Treasury market due to ongoing concerns about interest rate forecasts, which were further compounded by the most recent U.S. economic indicators.

Despite an early session drop in bond prices, they managed to recover somewhat, yet ended the day negatively. This led to a 5.4 basis point increase in the yield of the ten-year note, a standard market benchmark that inversely tracks its price, to reach 4.706 percent.

This surge follows a similar pattern from the previous day, marking the highest closing yield for the ten-year note in almost half a year.

The weakness in the Treasury market was exacerbated by the Commerce Department's preliminary report for first quarter Gross Domestic Product (GDP). While the U.S. economy's growth for the first quarter of 2024 fell short of projections, the report also highlighted a substantial increase in consumer prices during this period.

Specifically, the GDP grew by a mere 1.6 percent in the first quarter, following a 3.4 percent surge in the final quarter of 2023. By contrast, economists had predicted a GDP jump of 2.5 percent.

The report also indicated a 3.4 percent surge of the personal consumption expenditures price index in the first quarter, following a 1.8 percent increase in the previous quarter. When disregarding food and energy prices, the index rose by 3.7 percent in the first quarter, following a 2.0 percent jump in the fourth quarter of 2023.

Ryan Sweet, Chief US Economist at Oxford Economics, noted that "The recent firmness in inflation will keep interest rates high for longer". He went on to add "We recently revised our forecast for the timing of the first rate cut is pushed back from June to September." Suggesting the change will scale down the total easing this year from 75 basis points to 50 basis points, with risks more likely to lower it further.

Market reactions to Friday's report from the Commerce Department regarding personal income and spending, which includes inflation readings preferred by the Federal Reserve, are expected to drive trading.